Thames Water’s potential rescuers are seeking a clean break with the company’s past before they commit fresh funds, with some demanding a temporary renationalisation to help cut debts and replace bosses, the Guardian can reveal.

There has been public outrage at the governance of England’s water industry amid sewage spills into rivers and seas, mounting corporate debts and rising consumer bills.

New investors in Thames have a deadline of 10 February to submit bids, sources said. Four groups are expected to make offers, the Guardian understands. However, their fresh equity comes with a condition of steep losses for Thames’ creditors, according to sources familiar with the proposals.

Sources with detailed knowledge of two of the bids said they were considering making it a requirement that the UK’s largest water company go through a form of temporary nationalisation known as a special administration regime (SAR) to ratchet down its £19bn debt pile and oust senior management.

One bid has already made this a condition to ensure a “clean slate” and avoid shouldering the risk of historic financial agreements, a source said.

The supplier, which serves 16 million customers in London and south-east England, could run out of cash as soon as the end of March if it does not secure £3bn in emergency funding through an agreement with its creditors. This deal needs court approval with a hearing scheduled for 6 February. The utility has also said it would need at least £3.25bn in new equity funding.

The decision by the sector regulator, Ofwat, to allow Thames to increase bills by 35% by 2030 leaves it with too little cash to meet its operating expenses and attract investors, sources close to the company said. Without additional investment or a new settlement from Ofwat, they suggested Thames could face more imminent insolvency.

The government has approached a clutch of potential administrators from companies including Teneo and EY as part of its SAR contingency planning, codenamed Project Timber.

The prospect of a possible SAR creates a headache for Rachel Reeves as the chancellor attempts to put Britain’s economy on the front foot and draws up a review to tighten UK spending.

If there is a restructuring overseen by a government-appointed special administrator, Thames’ creditors would shoulder the greatest share of losses rather than the public, but the measure is still seen as politically toxic by some senior government figures.

A creditor source said: “It is implausible that the government would accept a scenario where creditors get badly burnt in a SAR. These are the very same investors they will need to help fund their big infrastructure projects and the Treasury has to be careful not to spook the debt markets with a wrong move on Thames.”

The utility’s fate has become a “source of tension” between Whitehall departments, sources told the Guardian. Officials in the Treasury, Cabinet Office and Department for Environment, Food & Rural Affairs (Defra) are divided on the best course of action amid pressure on public finances and Thames’ long-term investment needs.

Some Defra insiders are increasingly fearful of the impact of a temporary renationalisation on the department’s bargaining position in government-wide spending reviews.

Renationalisation has also been regarded by some as blow to Reeves’s pro-growth agenda, potentially driving up borrowing costs for the UK water sector and making the UK less attractive to foreign investors. However, government sources said an SAR would not necessarily shake confidence in UK plc if a clear exit plan was laid out to put Thames back into the private sector with better governance and fresh funding.

The government takes priority for any repayment of costs once a company exits an SAR, but it would be for an appointed administrator to determine how the rest of a company’s debts would be restructured during the process.

Thames has until 18 February to decide whether to appeal to the Competition and Markets Authority against a limit on bill increases by Ofwat. The regulator also fined Thames £18.2m in December for paying “unjustified” dividends.

Thames Water declined to comment.

An Ofwat spokesperson said: “Thames Water must continue to pursue all options to seek further equity to fund its turnaround plan for the benefit of customers and the environment. Safeguards are in place to ensure that services to customers are protected, regardless of issues faced by shareholders of Thames Water.”

A Defra spokesperson said: “The company remains stable and the government is closely monitoring the situation.”